Colors and More is considering replacing the equipment it uses to produce crayon

Question

Colors and More is considering replacing the equipment it uses to produce crayons. The equipment would cost $1.37 million, have a 12-year life, and lower manufacturing costs by an estimated $304,000 a year. The equipment will be depreciated using straight-line depreciation to a book value of zero. The required rate of return is 15 percent and the tax rate is 28 percent. What is the net income from this proposed project? Please show all work - thanks
Answer
$18,508

$40,211

$98,366

$123,391

$136,679

Explanation / Answer

Depreciation per year =$1.37 million/12 = 0.114167 million Increase in net income per year = ($304,000 - $114166.6667)(1-28%) = $136679.0 Answer - $136,679

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